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Business activity in South Africa grew for the first time in a year in August, with the latest S&P Global South Africa Purchasing Managers’ Index (PMI) swinging into positive territory after months below the line.
THe PMI provides a composite gauge of the operating conditions of the private sector. It grew from 48.2 in July to 51.0 in August.
This is the first time the PMI is above the neutral 50-point market in six months.
“The August South Africa PMI pointed to an encouraging turnaround in the private sector economy midway through the third quarter, as companies reported an increase in output for the first time in a year and demand conditions were broadly steady,” David Owen, Senior Economist at S&P Global Market Intelligence said.
“While inflationary pressures continued to sap customer spending power in many areas, there were hints that order books may be starting to improve, leading firms to make concerted expansion efforts.”
The recovery in output allowed businesses to hire more staff and purchase more, despite the strong increases in salaries and material prices. The increase in firing is because firms needed to build capacity and limit work backlogs.
Although cost pressures were sharp, they softened to a seven-month low, which led to a weaker increase in overall selling charges.
The driving force for the overall index into growth territory was the increase in business activity, with survey panellists seeing improved demand conditions.
Despite new order inflows falling for a fourth month in a row due to load shedding and the cost-of-living crisis, the latest data revealed the decrease was the softest seen in the sequence.
Additionally, several companies saw an increase in customer numbers and a recovery in domestic demand. However, export sales declined slightly in August.
There was still positive news for inflation, with business costs rising by their softest level since January, which resulted in a slower increase for a firm’s output charges.
However, price pressures remained due to the rand’s weakness, wage increases and supply issues – exacerbated by the Cape Town taxi driver strike.
Companies also saw a slight increase in their input stores during August as inventories declined across the four prior months. This expansion occurred even if there was a solid decline in supplier performance.
Looking ahead, South African businesses remained confident about future activity despite optimism levels declining slightly from the nine-month high in July.
Firms were optimistic about a pick-up in demand, declining inflation and a declining impact of load shedding on their operations.
However, Owen said that the improvement in August should not be overstated.
“August’s upturn does little to turn the tide after a dismal performance in 2023 so far. Load shedding, supply disruption and currency weakness continue to hinder firms and impact demand,” he said.
“Progress on these issues would certainly prove beneficial to South African companies in the latter part of this year.”
Read: Rand takes a beating as stage 6 load shedding bites
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